The OECD published in its Transfer Pricing Guidelines 2022 guidelines for Multinational Groups to consider when pricing their financial transactions.
The Organisation for Economic Co-operation and Development (OECD) published last month the Transfer Pricing Guidelines 2022. This version incorporated Chapter X on "Transfer Pricing Aspects of Financial Transactions", based on the report published by the OECD in February 2020 as part of the commitments of Action 4: Limiting the erosion of the tax base through interest and other financial expense deductions and Actions 8, 9 and 10: Ensuring that transfer pricing outcomes are in line with value creation of the OECD's BEPS Project.
These new guidelines developed the criteria for the accurate ring-fencing of financial transactions, which requires multinational groups to analyse the economically relevant characteristics and circumstances in which such transactions were carried out before verifying whether the transaction complies with the arm's length principle. In addition, these guidelines elaborate on how intra-group lending, pooled treasury, insurance, reinsurance and financial guarantees transactions should be assessed.
For transactions categorised as intra-group loans, the Guidelines set out the conditions to be considered for deductibility, and if these conditions are not taken into account in the analysis and supporting documentation, the deductibility of interest expenses and the determination of the multinational group's tax payable would be affected.